The ACH Network and the Payments Industry
A batch, deferred-settlement system
The ACH Network is not a real-time authorization network. Entries are transmitted in files, sorted into batches, value-dated with an Effective Entry Date, and settled on a net basis across participants' Federal Reserve accounts. Keeping the sequence straight - origination → processing → settlement → posting - resolves most questions about timing.
The roles
- Originator - the entity that initiates the entry (a company paying payroll, a biller debiting consumers).
- ODFI - the Originator's depository institution; it transmits the file and gives warranties.
- ACH Operator - FedACH (Federal Reserve) or the Electronic Payments Network (The Clearing House); it distributes files and performs settlement.
- RDFI - the Receiver's institution; it posts and makes funds available.
- Receiver - the consumer or company whose account is debited or credited.
One institution can hold several roles simultaneously. A question describing a bank acting as both ODFI and RDFI is testing whether you can keep the duties separate.
Governance
Nacha owns and writes the Operating Rules; the Operators do not. The Federal Reserve is also subject to Regulation J for entries it processes, and consumer accounts are protected by Regulation E.
Traps
Claiming Nacha processes or settles entries; confusing an Effective Entry Date with actual settlement (a non-banking day rolls forward); treating Same Day ACH as a separate network rather than a processing window of this one.
Rule of thumb: Nacha writes the rules, the Operators move the files, the ODFI carries the warranties. Worked example: trace number 231380104000001 - the first eight digits (23138010) are the ODFI routing number, the last seven the item sequence.